TaxTMI 
TaxTMI 
2023 (12) TMI 427
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.... Adv. Mr. Rohan Batra, AOR Mr. Ritin Rai, Sr. Adv. Mr. Farhad Sorabjee, Adv. Mr. Dheeraj Nair, AOR Mr. Kumar Kislay, Adv. Mr. Pratik Pawar, Adv. Mr. Siddhesh Pradhan, Adv. Ms. Shanaya Cyrus Irani, Adv. Ms. Aishna Jain, Adv. Mr. Apoorv Shukla, AOR Mr. Anirudh Krishnan, Adv. Mr. Shiva Krishnamurti, Adv. Mr. Balaji Srinivasan, AOR Mr. Rohan Dewan, Adv. Ms. Sukanya Joshi, Adv. Mr. Vishwaditya, Adv. Ms. Niti Richariya, Adv. Ms. Gauri Pasricha, Adv. Mr. Ramkishore Karnam, Adv. Mr. Adarsh Subramanian, Adv. Ms. Mahaswetha S, Adv. Mr. Varun Venkatesan, Adv. Mr. Mohit Kumar, Adv. Ms. Anisha C, Adv. Mr. George Pothan Poothicote, Adv. Ms. Manisha Singh, Adv. Ms. Jyoti Singh, Adv. Mr. Ashu Pathak, Adv. Mr. Arunava Mukherjee, AOR Mr. Debesh Panda, AOR Mr. Pallav Mongia, AOR Mr. Tushar Srivastava, Adv. Mr. Vijay Deora, Adv. Mr. Jayesh Gupta, Adv. Mr. Ritik Sharma, Adv. Mr. Ajay Bhargava, Adv. Mrs. Vanita Bhargava, Adv. Mr. Aseem Chaturvedi, Adv. Mrs. Trishala Trivedi, Adv. Mr. Milind Sharma, Adv. M/S. Khaitan & Co., AOR Mr. Ujjwal A. Rana, Adv. Mr. Himanshu Mehta, Adv. M/S. Gagrat And Co, AOR JUDGMENT Dr. Dhananjaya Y Chandrachud, CJI Table of Contents A. The reference .............
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............... 80 F. The group of companies doctrine has independent existence ............................. 85 i. Party and Persons "claiming through or under" are different ............................ 88 ii. The approach adopted by this Court in Chloro Controls is Incorrect ................ 92 iii. Power of the Courts to issue directions under Section 9 .................................. 97 G. The standard of determination at the referral stage - Sections 8 and 11 ............ 98 H. Conclusions ....................................................................................................... 104 PART A A. The reference 1. More than a century ago, James Joyce published Ulysses. Joyce experimented with the narrative technique by extensively using a stream of consciousness. In its modernist narrative technique, Ulysses is feted by literary critics and novelists as a literary masterpiece. Novelists such as Vladimir Nabokov and T S Elliot eulogized it as a divine work of art. However, others such as Virginia Woolf and Aldous Huxley criticized the novel for being technical and boring. Despite the varied criticism, the legacy of Ulysses en....
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....k, (2020) 12 SCC 767, and Oil and Natural Gas Corporation Ltd v. Discovery Enterprises Pvt. Ltd., (2022) 8 SCC 42 He also observed that economic concepts such as tight group structure and single economic unit alone cannot be utilized to bind a non-signatory to an arbitration agreement in the absence of an express consent. Consequently, he referred the matter to the larger Bench to seek clarity on the interpretation of the phrase "claiming through or under" appearing under Sections 8, 35, and 45 of the Arbitration Act by formulating the following two questions: a. Whether the phrase 'claiming through or under' in Sections 8 and 11, The reference to Section 11 seems inadvertent as the phrase "claiming through or under" is not found in the said provision. Rather, Section 11 ought to be read as Section 45 where the phrase "claiming through or under" appears. could be interpreted to include the 'Group of Companies' doctrine; and b. Whether the 'Group of Companies' doctrine as expounded by Chloro Controls Case (supra) and subsequent judgments is valid in law. 5. In a concurring opinion, Justice Surya Kant observed that the decisions of this Court before Chloro Contro....
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....natory could be bound by an arbitration agreement if in the course of a written communication, it has demonstrated an intention to be bound by the agreement; and d. The group of companies doctrine should ideally be applied by the arbitral tribunal. At the stage of referral, the court should merely take a prima facie view and leave it for the arbitral tribunal to determine the necessity of joining the non-signatories to the arbitration agreement. 8. Mr Darius J Khambata, learned senior counsel appearing for the respondents in SLP (C) No. 8607 of 2022, made the following submissions: a. The applicability of the group of companies doctrine must be examined from the touchstone of whether a non-signatory could be made a party to the arbitration agreement. The expression "claiming through or under" a party cannot be the basis to apply the doctrine; b. The doctrine is a consensual theory premised on the existence of a dispute arising from a defined legal relationship and mutual intention of the parties to be bound by the arbitration agreement. The intention of the nonsignatory has to be ascertained from the cumulative factors laid down in Chloro Controls (sup....
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....n-signatory party to an arbitration agreement. The court can also consider nonconsensual doctrines such as piercing the corporate veil, alter ego, or tight group structure; and d. The Arbitration Act does not prohibit or inhibit the adoption of the group of companies doctrine in Indian arbitration jurisprudence. On the contrary, Section 7 of the Arbitration Act provides an expansive concept of an arbitration agreement. Moreover, the legislature specifically amended Section 8 of the Arbitration Act by inserting the words "any person claiming through or under" to recognize and codify the reality of non-signatories acting through or under the signatory parties. 10. Mr Kapil Sibal, learned senior counsel appearing for the intervener in IA No. 56615 of 2023, made the following submissions: a. A non-signatory can be impleaded in an arbitration proceeding provided: (i) there is a defined legal relationship between the non-signatory and the parties to the arbitration agreement; and (ii) the non-signatory consented to be bound by the arbitration agreement in terms of Section 7 of the Arbitration Act; b. The onus to prove the intention of the non-signatory to be....
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....Act requires the arbitration agreement to be in writing. Therefore, an arbitration agreement cannot be created on the basis of implied consent of the non-signatory; b. Complex multi-party contracts are outcomes of detailed negotiations entered into after parties have fully applied their mind. To impute intention to parties in contradiction to the express terms of the agreement would defeat the purpose of the parties' memorializing their understanding in a negotiated, written document; c. An arbitration agreement which sets out the executing parties and the arbitral procedure agreed among them cannot be read to expand its reach to third parties; d. The group of companies doctrine cannot be traced to the phrase "claiming through or under" as provided under Sections 8 and 45 of the Arbitration Act; and e. Chloro Controls (supra) erroneously failed to consider whether an implied consent derived from the conduct of a non-signatory satisfied the requirement of a clear intention to arbitrate. Moreover, Chloro Controls (supra) wrongly held that the courts have the discretion to refer nonsignatory parties to arbitration under Sections 8 or 45 of the Arbit....
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....nt in SLP (C) No. 8607 of 2022, argued for de-tagging of SLP (C) No. 8607 of 2022 from the lead matter, that is Arbitration Petition No. 38 of 2020, as the former deals with power of the courts to issue directions under Section 9 of the Arbitration Act against third parties. Further, the learned senior counsel submitted that the courts can take aid of the group of companies doctrine to issue interim directions against non-signatories to the arbitration agreement. 17. The arguments advanced by advocates on both sides of the aisle indicate that this Constitution Bench has been primarily called upon to determine the validity of the group of companies doctrine in Indian arbitration jurisprudence. However, there are other broad ancillary issues which have been raised by the learned counsel. These include: (i) whether the Arbitration Act allows joinder of a non-signatory as a party to an arbitration agreement; and, (ii) whether Section 7 of the Arbitration Act allows for determination of an intention to arbitrate on the basis of the conduct of the parties. This Bench will address the issues arising out of the order of reference as well as the abovementioned ancillary issues in due cou....
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....utes an arbitration agreement if two conditions are satisfied. These conditions are first, that the contract is in writing; and second, that the reference is such as to make the arbitration clause part of the contract. 20. An arbitration agreement, being a creature of contract, Bhaven Construction v. Executive Engineer, Sardar Sarovar Narmada Nigam Ltd, (2022) 1 SCC 75 is based on the consent of parties to submit their disputes to an alternate dispute resolution mechanism. Generally, a party to an arbitration agreement is determined on the basis of persons or entities who are signatories to the arbitration agreement or the underlying contract containing the arbitration agreement. However, over the past two decades the law on joinder of non-signatory parties has evolved substantially. The evolution could roughly be classified into two stages: before Chloro Controls (supra) and after Chloro Controls (supra). 21. In the pre Chloro Controls (supra) era, this Court construed "parties" by limiting it only to the signatories to the arbitration agreement. In Sukanya Holdings (supra) the applicant filed an application under Section 8 of the Arbitration Act before the High Court and so....
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....ory party; S N Prasad v. Monnet Finance Ltd, (2011) 1 SCC 320 (ii) the court would adopt a strict interpretation of the provisions of the Arbitration Act, particularly the unamended Section 8 which only allowed reference of "parties" to an arbitration agreement; and (iii) there was an emphasis on formal consent of the parties, thereby excluding any scope for implied consent of the non-signatories to be bound by an arbitration agreement. This position of law underwent a significant change when a Bench of three Judges of this Court in Chloro Controls (supra) allowed joinder of non-signatory parties to the arbitration agreement on the basis of the group of companies doctrine. a. Chloro Controls 24. In Chloro Controls (supra) this Court was called upon to determine an arbitral reference in case of multi-party agreements where performance of the ancillary agreements was substantially dependent upon effective execution of the principal agreement. In that case, a foreign entity and an Indian entity incorporated a joint venture company to market and distribute chlorination equipment. With respect to the joint venture, the related companies of both the Indian and foreign entity were a....
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..... However, the court noted that such non-signatory parties are required to claim "through or under the signatory party." Thus, this Court accepted that arbitration is possible between a signatory to an arbitration agreement and a third party or non-signatory claiming through a party. 26. The next issue before this Court was to determine whether there was any legal relationship between the signatory and the non-signatory for the latter to "claim through or under" the former. The court noted that the group of companies doctrine has been developed by courts and tribunals in the international context to bind a non-signatory affiliate or sister concern within the same corporate group as the signatory party, to an arbitration agreement provided there was a mutual intention of all the parties. This court emphasized that the "intention of the parties" is the underlying principle for the application of the group of companies doctrine. It observed: "72. This evolves the principle that a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as....
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....that all the agreements were signed by "some parties or their holding companies or the companies into which the signatory company had merged." Although these companies did not put pen to paper for all the agreements, they were descendants in interest or subsidiaries of the signatory parties and therefore would be covered under the expression "claiming through or under" the parties to the agreement. In this context the Court observed that being part of the same corporate group, the interests of the non-signatory companies were not adverse to the interest of the principal company and the joint venture company. Therefore, the group of companies doctrine formed the basis for a non-signatory to claim through or under the signatory. Chloro Controls (supra) laid down the ratio that a non-signatory person or entity could be made a party to an arbitration agreement, as "claiming through or under" a signatory party, if the circumstances demonstrate the mutual intention of the parties on the basis of the composite nature of the transaction, direct commonality of subject-matter, and direct relationship of the non-signatory to the signatory parties. b. Development of Law after Chloro Control....
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....natories and nonsignatories were intended to be bound. One of us (D Y Chandrachud J) explained the evolution of the group of companies doctrine in the Indian context in the following terms: "23. As the law has evolved, it has recognised that modern business transactions are often effectuated through multiple layers and agreements. There may be transactions within a group of companies. The circumstances in which they have entered into them may reflect an intention to bind both signatory and nonsignatory entities within the same group. In holding a non-signatory bound by an arbitration agreement, the court approaches the matter by attributing to the transactions a meaning consistent with the business sense which was intended to be ascribed to them. Therefore, factors such as the relationship of a non-signatory to a party which is a signatory to the agreement, the commonality of subject-matter and the composite nature of the transaction weigh in the balance. The group of companies doctrine is essentially intended to facilitate the fulfilment of a mutually held intent between the parties, where the circumstances indicate that the intent was to bind both signatories and non-sig....
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....signatory parties based on their participation in the negotiation of the underlying contract. The court held that the non-signatory party, even though a constituent part of the corporate group, did not have "any causal connection with the process of negotiations preceding the agreement or the execution thereof, whatsoever." Thus, the participation of the non-signatory party in the negotiation and performance of the underlying contract was held to be the key determinant of the intention of the parties to be bound by an arbitration agreement. 37. In Canara Bank (supra), this Court emphasized that the group of companies doctrine could be invoked on the basis of the principle of "single economic unit". In that case, the facts were that Canbank Financial Services Ltd, "CANFINA", a wholly owned subsidiary of Canara Bank, subscribed to the bonds floated by MTNL. CANFINA subsequently transferred the bonds to Canara Bank. Eventually, MTNL cancelled the bonds which gave rise to the dispute between the parties. Canara Bank filed a writ petition before the Delhi High Court challenging the cancellation of bonds by MTNL. The High Court referred the parties to arbitration, but Canara Bank chal....
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....tional context. Such an analysis is particularly relevant because any authoritative determination by this Court with regard to the group of companies doctrine ought to be in tune with the internationally accepted principles on the vexed issue of joining nonsignatories to arbitration agreements. 40. The origin of the doctrine is primarily attributed to a number of arbitration awards rendered mainly in France. The most prominent among them remains an interim award delivered more than four decades ago by an ICC tribunal in Case No. 4131, Dow Chemical v. Isover Saint Gobain, Interim Award, ICC Case No. 4131, 23 September 1982 more popularly known as the Dow Chemicals case. In that case, Dow Chemical (Venezuela) entered into a contract with a French company, which later assigned the rights to Isover Saint Gobain, for distribution of thermal isolation products in France. Dow Chemical (Venezuela) subsequently assigned the contract to Dow Chemical AG, which was a subsidiary of Dow Chemical Company - the holding company. Thereafter, Dow Chemical Europe, a subsidiary of Dow Chemical AG, entered into a similar contract with three companies, which subsequently assigned the contract to Isove....
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....ant observation is extracted below: "Considering, in particular, that the arbitration clause expressly accepted by certain of the companies of the group should bind the other companies which, by virtue of their role in their conclusion, performance, or termination of the contracts containing said clause, and in accordance with the mutual intention of all parties to the proceedings, appear to have been veritable parties to these contracts or to have been principally concerned by them and the disputes to which they may give rise." 43. In Dow Chemical (supra), the arbitral tribunal did not base its decision to extend the arbitration agreement to non-signatories solely on the fact that both the signatory and non-signatory parties were members of the same group. The tribunal emphasized the importance of determining the true parties to the arbitration agreement on the basis of their participation in the negotiation, performance, and termination of the agreement. The Dow Chemical case has been regarded as being instrumental in the transition from a restrictive interpretation of consent focusing only on its express manifestation to a more flexible approach attaching necessary r....
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.... valid arbitration clause according to Section 178(1) of the Swiss Act, the issue whether it also extends to non-signatories may be decided by the courts or the arbitral tribunals. As a matter of general rule, the Swiss courts have extended an arbitration agreement to non-signatories typically in cases of assignment of a claim, assumption of debt or delegation of a contract., A, B, C v. D and State of Libya, 4A_636/2018 47. In a decision rendered in 1996, the Swiss Federal Supreme Court held that the fact that a non-signatory party belonged to the same group of companies as the signatory party to the arbitration agreement was not a sufficient justification for binding the non-signatory to the arbitration agreement., Saudi Butec Ltd et Al Fouzan Trading v. Saudi Arabian Saipem Ltd, unpublished ICC Interim Award of 25 October 1994, confirmed by DFT on 29 January 1996, ASA Bulletin (1996) Vol 3 p 496. However, the Swiss Courts are not averse to extending an arbitration agreement to non-signatory parties if there is an independent and formally valid manifestation of consent of the non-signatory party to the arbitration agreement. 48. In Swiss law, the consent of the parties to be....
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....The arbitral tribunal applied the group of companies doctrine to hold that C & M Farming contracted on behalf of the entire C & M group entities, and therefore was entitled to claim all the damages suffered by the C & M group entities arising out of the contractual relationship with Peterson. In appeal, the Commercial Court held that the chosen proper law of the Agreement - Arkansas law - is similar to the English law which excludes the application of the group of companies doctrine. Thus, the English law does not favor the application of the group of companies doctrine for extending an arbitration agreement to non-signatory parties. 51. The English precedents have also dealt with the meaning of the phrase "claiming through or under", which was referred to by this Court in Chloro Controls (supra). In Roussel-Uclaf v. G D Searle and Co Ltd [1978] 1 Lloyd's Rep, the issue before the Court of Chancery Division was whether a wholly owned subsidiary company could claim to be a party to an arbitration agreement between the parent company and a third party. The Court was called upon to interpret Section 1 of the Arbitration Act of 1975 which allowed any party to an arbitration agreemen....
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....ommon intention on behalf of the Government and Dallah to make the former a party to the agreement. The Court observed that the "common intention of the parties means their subjective intention derived from the objective evidence." It was held that there was no evidence to conclude that the Government's behavior showed that it always considered itself to be a true party to the agreement. v. Singapore 54. In Manuchar Steel Hong Kong Limited v. Star Pacific Line Pte Ltd, [2014] SGHC 181 the Singapore High Court expressly rejected the group of companies doctrine to bind non-signatories to arbitration agreement. The High Court reasoned that the group of companies doctrine was: first, anathema to the logic of consensual basis of an agreement to arbitrate; and second, ordering of companies within a broader group did not mean one could dispense with separate legal entity. The Singapore High Court relied on position of law taken in Peterson Farms INC (supra) to observe that enforceable obligations cannot be imposed on "strangers" to an arbitration agreement. vi. United States of America 55. The Federal Arbitration Act is silent on the aspect of the joinder of nonsignatory parti....
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....o bind non-signatory parties to an arbitration agreement. The doctrine of arbitral estoppel suggests that a party is estopped from denying its obligation to arbitrate when it received a 'direct benefit' from a contract containing an arbitration agreement., American Bureau, Shipping v. Tencara Shipyard, 170 F.3d 349, 353 (2d Cir 1999) The second type of arbitral estoppel developed by the US courts places emphasis on the substantial interdependent relationship between the signatory and non-signatory party., Sunkist Soft Drinks, Inc v. Sunkist Growers, Inc, 10 F.3d 753, 757 (11th Cir 1993) In a situation where claims of concerted misconduct were raised against both the signatory and nonsignatory to the contract, the courts have resorted to the doctrine of equitable estoppel to further the policy of pro-arbitration., Grigson v. Creative Artists Agency, LLC, 210 F.3d 524 (2000) 58. The above discussion shows that international jurisdictions, in some form or the other, have moved beyond the formalistic requirement of consent to bind a non-signatory to an arbitration agreement. The primary conclusion is that the issue of binding a non-signatory to an arbitration agreement is more of a ....
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....tral award. The second stage pertains to the enforcement of the arbitral award., Satish Kumar v. Surinder Kumar, (1969) 2 SCR 244 60. Consent forms the cornerstone of arbitration. An arbitration agreement records the consent of the parties to submit their disputes to arbitration. A two- Judge Bench of this Court in Bihar State Mineral Development Corporation v. Encon Builders (I) Pvt. Ltd. (2003) 7 SCC 418 laid down four essential elements of an arbitration agreement: (i) There must be a present or a future difference in connection with some contemplated affair (ii) The parties must intend to settle such difference by a private tribunal (iii) The parties must agree in writing to be bound by the decision of such tribunal. (iv) The parties must be ad idem. 61. An arbitration agreement is a contractual undertaking by two or more parties to resolve their disputes by the process of arbitration, even if the disputes themselves are not based on contractual obligations. An arbitration agreement is a conclusive proof that the parties have consented to submit their dispute to an arbitral tribunal to the exclusion of domestic courts. The basis for an ....
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....or more persons are said to consent when they agree upon the same thing in the same sense. Thus, consensus ad idem between the parties forms the essential basis to constitute a valid arbitration agreement. 64. Being a creature of a contract, an arbitration agreement is also bound by the general principles of contract law, including the doctrine of privity. The doctrine of privity means that a contract cannot confer rights or impose liabilities on any person except the parties to the contract. This doctrine has two aspects: first, only the parties to the contract are entitled under it or bound by it; and second, the parties to the contract cannot impose a liability on a third party. As a corollary, a third party cannot acquire rights and entitlements under a contract. In M C Chacko v. State Bank of Travancore, this Court held it as a settled principle of law that a person who is not party to a contract cannot enforce the terms of the contract, subject to certain well-recognised exceptions such as trust, family arrangement, and assignment. (1969) 2 SCC 343 The principle that only the parties to an arbitration agreement are either bound or benefited by such an agreement is fundamen....
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....Settlement 610. The important determination is whether such a non-signatory intended to effect legal relations with the signatory parties and be bound by the arbitration agreement. There may arise situations where persons or entities who have not formally signed the arbitration agreement or the underlying contract containing the arbitration agreement may intend to be bound by the terms of the agreement. In other words, the issue of who is a "party" to an arbitration agreement is primarily an issue of consent. 67. Section 2 of the Contract Act provides that when a person signifies their willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, is said to make a proposal. The proposal is said to be accepted when the person to whom the proposal is made signifies their assent. A proposal becomes promise upon acceptance. Every promise and every set of promises, forming the consideration for each other, is an agreement. Importantly, Section 9 provides that a promise is said to be express if the proposal or acceptance of any promise is made in words, while a promise is said to be implied if such proposal or accepta....
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.... contract. This also applies to an arbitration agreement considering the fact that it is a creature of contract. However, an arbitration agreement also has to meet the requirements laid down under the Arbitration Act to be valid and enforceable. 70. Section 2(h) of the Arbitration Act defines a "party" to mean a party to an arbitration agreement. Section 7 defines an arbitration agreement to mean an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a "defined legal relationship." Section 7 requires that an arbitration agreement has to be in writing. Section 7 indicates the circumstances in which it is regarded as an agreement in writing. Such an agreement may be embodied in a document, an exchange of communications, including in the electronic form, or in a statement of claim which is not traversed in the defence. In Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1 this Court observed that a legal relationship means a relationship which gives rise to legal obligations and duties, and confers a right. Such a right may be contractual or non-contractual. In case of a non-contractual leg....
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....ough their actions of exchanging documents. However, the important aspect of the said provision lies in the fact that the parties should be able to record their agreement through a documentary record of evidence. In Great Offshore Ltd. v. Iranian Offshore Engineering and Construction Company, this Court observed that Section 7(4)(b) requires the court to ask whether a record of agreement is found in the exchange of letters, telex, telegrams, or other means of telecommunication., (2008) 14 SCC 240 Thus, the act of agreeing by the persons or entities has to be inferred or derived by the courts or tribunals from the relevant documents and communication, neither of which can be equated with a conventional contract. 73. The third circumstance is provided under Section 7(4)(c), according to which an arbitration agreement is in writing if it is contained in an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. A two-Judge Bench of this Court clarified in S N Prasad v. Monnet Finance Limited, (2011) 1 SCC 320 that there will be an "exchange of statements of claim and defence" for the purposes of Sectio....
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....gnature is not necessary for an arbitration agreement. The UNCITRAL Model Law as amended in 2006 lays down the writing requirement for an arbitration agreement under Article 7 in the following terms: "(3) An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means." The above provision states that an arbitration agreement may be entered into in any form, for example orally or tacitly, as long as the content of the agreement is recorded. It eliminates the requirement of the signature of parties or an exchange of messages between the parties. 77. Article II paragraph 2 of the New York Convention defines "agreement in writing" to include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. Article 7 of the UNCITRAL Model Law establishes a more favourable requirement for a written arbitration agreement. In 2006, UNCITRAL recommended that the circumstances described in Article II paragraph 2 of the New York Convention "be applied recognizing that the circumstance....
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....agreement does not exclude the possibility of binding nonsignatory parties if there is a defined legal relationship between the signatory and non-signatory parties; and seventh, once the validity of an arbitration agreement is established, the court or tribunal can determine the issue of which parties are bound by such agreement. 79. It is presumed that the formal signatories to an arbitration agreement are parties who will be bound by it. However, in exceptional cases persons or entities who have not signed or formally assented to a written arbitration agreement or the underlying contract containing the arbitration agreement may be held to be bound by such agreement. As mentioned in the preceding paragraphs, the doctrine of privity limits the imposition of rights and liabilities on third parties to a contract. Generally, only the parties to an arbitration agreement can be subject to the full effects of the agreement in terms of the reliefs and remedies because they consented to be bound by the arbitration agreement. Therefore, the decisive question before the courts or tribunals is whether a non-signatory consented to be bound by the arbitration agreement. To determine whether ....
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....n applied, albeit controversially, for identifying the real intention of the parties to bind a non-signatory to an arbitration agreement. PART E E. Group of Companies Doctrine i. Separate legal personality 82. The phenomenon of group companies is the modern reality of economic life and business organisation. Group companies are a set of separate firms linked together in formal or informal structures under the control of a parent company. The group companies can be defined in the Indian context as "an agglomeration of privately held and publicly traded firms operating in different lines of business, each of which is incorporated as a separate legal entity, but which are collectively under the entrepreneurial, financial, and strategic control of a common authority, typically a family, and are linked by trust-based relationships forged around a similar persona, ethnicity, or community.", Jayati Sarkar, 'Business Groups in India' in Asli Coplan, Takashi Hikino, and James Lincoln (eds) The Oxford Handbook of Business Groups (2010) 299 A group company involving the parent and subsidiary companies are created for myriad purposes such as limiting the liability of the p....
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....gh it may be advantageous for parent and subsidiary companies to work as a group, each subsidiary will look to see whether there are separate commercial interests which should be gained." 85. The separateness of corporate personality will be ignored by courts in exceptional situations where a company is used as a means by the members and shareholders to carry out fraud or evade tax liabilities. If the court, on the basis of factual evidence, determines that the company was acting as an agent of the members or shareholders, it will ignore the separate personality of the company to attribute liability to the individuals. In Tata Engineering and Locomotive Co Ltd v. State of Bihar (1964) 6 SCR 885, the issue before a Constitution Bench of this Court was whether a company could be treated as a citizen for the purposes of maintaining a writ petition under Article 32 of the Constitution. The company urged that the corporate veil should be lifted to treat the petition as one filed by the shareholders. This Court held that the veil of a corporation can be lifted where fraud is intended to be prevented or trading with an enemy is sought to be defeated. 86. In case of group companies, ....
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....inciple of piercing the corporate veil has been sparingly used because it disregards the intention of the parties by emphasizing on the overriding considerations of good faith and equity to bind the non-signatories to an arbitration agreement. 88. Moreover, since the companies in a group have separate legal personality, the presence of common shareholders or directors cannot lead to the conclusion that the subsidiary company will be bound by the acts of the holding company. The statements or representations made by promoters or directors in their personal capacity would not bind a company. Similarly, the mere fact that the two companies have common shareholders or a common Board of Directors will not constitute a sufficient ground to conclude that they are a single economic entity. The single economic entity or the single economic unit theory imposes general enterprise liability on the corporate group. In D H N Food Distributors Ltd v. Tower Hamlets London Borough Council, [1976] 1 WLR 852 (2), Lord Denning held that a group of three companies should be treated as a single economic entity on the basis of two factors: first, the parent company owned all the shares of the subsidia....
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....such arbitration agreement due to their legal relationship with the signatory parties and involvement in the performance of the underlying contract. Especially in cases involving complex transactions involving multiple parties and contracts, a non-signatory may be substantially involved in the negotiation or performance of the contractual obligations without formally consenting to be bound by the ensuing burdens, including arbitration. 92. Modern commercial reality suggests that there often arise situations where a company which has signed the contract containing the arbitration clause is not always the one to negotiate or perform the underlying contractual obligations. In such situations, emphasis on formal consent will lead to the exclusion of such non-signatories from the ambit of the arbitration agreement, leading to multiplicity of proceedings and fragmentation of disputes. In A Ayyasamy v. A Paramsivam, (2016) 10 SCC 386 this Court observed that it is the duty of the courts "to impart to that commercial understanding a sense of business efficacy." The courts must interpret contracts in a manner that would give them a sense of efficacy rather than invalidating the commercia....
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....tween parties to an arbitration agreement. On the one hand, the courts and tribunals cannot lightly brush aside the decision of the parties to not make a person or entity a party to the arbitration agreement. The fact that the non-signatory did not put pen to paper may be an indicator of its intention to not assume any rights or responsibilities under the arbitration agreement. On the other hand, courts and tribunals cannot adopt a rigid approach to exclude all persons or entities who, through their conduct and relationship with the signatory parties, intended to be bound by the underlying contract containing the arbitration agreement. The area of arbitration law not only concerns domestic law, but it also encompasses the international law, particularly when it pertains to the enforcement of international arbitral awards. Therefore, this Court ought to adopt a balanced approach without comprising on the basic principles of arbitration law, contract law, and company law to ensure that the resultant legal framework is consistent with internationally accepted practices and principles. 96. A formalistic construction of an arbitration agreement would suggest that the decision of a pa....
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.... law has developed and adopted the group of companies doctrine, to allow or compel a non-signatory party to be bound by an arbitration agreement. iii. Group of companies doctrine - a fact based doctrine 98. The group of companies doctrine is used in the context of companies which are related to each other by virtue of their being a part of the same corporate group. Since every company in a group has a separate legal personality, a contract formally entered by one member of a group will not be binding on the other members by virtue of the limited liability principle. The group of companies doctrine is used to bind a non-signatory company within a group to an arbitration agreement which has been signed by other member of the group., UNCITRAL, 'Settlement of Commercial Disputes: Possible uniform rules on certain issues concerning settlement of commercial disputes: conciliation, interim measures of protection, written form of arbitration agreement: Report of the Secretary General' A/CN.9/WG.II/WP.108/Add.1 (26 January 2000) The underlying basis of the group of companies doctrine rests on maintaining the corporate separateness of the group companies while determining the common in....
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....agreements by prohibiting circumvention of arbitration through satellite litigation by non-signatory parties within a group. We are broadly in agreement with this view for the reasons to follow. 101. The group of companies doctrine was developed by international arbitral tribunals specifically in the context of arbitration, and is not generally used in other areas of law., Gary Born (n 44) 1559. Although the existence of a group of companies is a necessary condition, it is not the sufficient condition to determine the intention of the parties. In almost all formulations, the courts and tribunals have cautioned that the mere membership of a non-signatory in a group of companies is not enough to bind it to the arbitration agreement. Rather, the courts need to determine: first, the existence of a group of companies; and second, the conduct of the signatory and non-signatory parties which indicate their common intention to make the non-signatory a party to the arbitration agreement., Gary Born (n 44) 1562. Thus, the group of companies doctrine is similar to other consent based doctrines such as agency, assignment, assumption, and guarantee to the extent that it is ordinarily applied....
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.... contract." 104. In Cox and Kings (supra), Surya Kant, J questioned whether the principles of alter ego or piercing the corporate veil can alone justify the application of the group of companies doctrine even in the absence of implied consent. This Court in Cheran Properties (supra) clarified that there is an important distinction between the group of companies doctrine and the principle of veil piercing or alter ego. The principle of alter ego disregards the corporate separateness and the intentions of the parties in view of the overriding considerations of equity and good faith. In contrast, the group of companies doctrine facilitates the identification of the intention of the parties to determine the true parties to the arbitration agreement without disturbing the legal personality of the entity in question. Therefore, the principle of alter ego or piercing the corporate veil cannot be the basis for the application of the group of companies doctrine. iv. The determination of mutual intention 105. In multi-party agreements, the courts or tribunals will have to examine the corporate structure to determine whether both the signatory and nonsignatory parties belong to the s....
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....ory or third party could be subjected to arbitration without their prior consent, but this would only be in exceptional cases. The court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject-matter and the agreement between the parties being a composite transaction. The transaction should be of a composite nature where performance of the mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute. Besides all this, the court would have to examine whether a composite reference of such parties would serve the ends of justice. Once this exercise is completed and the court answers the same in the affirmative, the reference of even non-signatory parties would fall within the exception afore-discussed." (emphasis supplied) 108. In Cox and Kings (supra), Justice Surya Kant observed a contradiction in terms of the above extracted paragraphs 72 and 73 of Chloro Controls (supra). According to Justice Surya Kant, on the one hand, Chloro Control....
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....covery Enterprises (supra), this Court refined and clarified the cumulative factors that the courts and tribunals should consider in deciding whether a company within a group of companies is bound by the arbitration agreement: "40. In deciding whether a company within a group of companies which is not a signatory to arbitration agreement would nonetheless be bound by it, the law considers the following factors: (i) The mutual intent of the parties; (ii) The relationship of a non-signatory to a party which is a signatory to the agreement; (iii) The commonality of the subject-matter; (iv) The composite nature of the transactions; and (v) The performance of the contract." 111. Since the group of companies doctrine is a consent based theory, its application depends upon the consideration of a variety of factual elements to establish the mutual intention of all the parties involved. In other words, the group of companies doctrine is a means to infer the mutual intentions of both the signatory and non-signatory parties to be bound by the arbitration agreement. The relationship between and among the legal entities within the corpora....
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....the caution expressed by Justice Surya Kant. The presence of commercial relationships between a party and a non-signatory cannot be the sole criteria to bind non-signatory parties to the arbitration agreement. Adopting such an approach would bind all the non-signatories within a corporate group, even though they are not related to the contractual obligations under consideration, to the arbitration agreement. Consequently, such an approach will lead to the violation of the basic legal tenet of arbitration - the necessity of consent, either express or implied, to be bound by an arbitration agreement. Moreover, the imposition of liability on a non-signatory company within a group for the acts of other members of the group merely on the basis of the fact that they belong to a "single economic unit" will ride roughshod over the principle of distinct corporate personality. The objective of the group of companies doctrine is to identify the mutual intentions of the parties without disregarding the legal personality of the entities. 114. In Dow Chemicals (supra), it was held that a group of companies constitutes the same economic reality, which has to be considered by the arbitral tribu....
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....ral position of law is that parties will be referred to arbitration under the principal agreement if there is a situation where there are disputes and differences "in connection with" the main agreement and also disputes "connected with" the subject-matter of the principal agreement., Olympus Superstructures (P) Ltd v. Meena Vijay Khetan, (1999) 5 SCC 651 In Chloro Controls (supra), this Court clarified that the principle of "composite performance" would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand, and the explicit intention of the parties and attendant circumstances on the other. The common participation in the commercial project by the signatory and nonsignatory parties for the purposes of achieving a common purpose could be an indicator of the fact that all the parties intended the non-signatory party to be bound by the arbitration agreement. Thus, the application of the group of companies doctrine in case of composite transactions ensures accountability of all parties who have materially participated in the negotiation and performance of the transaction and by doing so have evinced a mutual intent to be bound by th....
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....pany was a non-signatory to the agreement. Yet, the applicant sought to implead the Belgian company on the basis that it had participated during the negotiations preceding the execution of the agreement. This Court refused to allow the joinder of the Belgian company to the arbitration agreement on the grounds that Mr. Reynders was not the promoter of the Belgian company, and was therefore not acting in that capacity on or behalf of the company and the applicant failed to discharge its burden to prove that the Belgian company consented to the arbitration agreement. 121. Evaluating the involvement of the non-signatory party in the negotiation, performance, or termination of a contract is an important factor for a number of reasons. First, by being actively involved in the performance of a contract, a non-signatory may create an appearance that it is a veritable party to the contract containing the arbitration agreement; second, the conduct of the nonsignatory may be in harmony with the conduct of the other members of the group, leading the other party to legitimately believe that the non-signatory was a veritable party to the contract; and third, the other party has legitimate rea....
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....itration agreement, as distinct from the underlying contract containing the arbitration agreement., Gary Born (n 44) 1545. 124. Stavros Brekoulakis argues that the application of legal theories such as group of companies doctrine rests on an assumption that an arbitration agreement requires "less consent" or "less evidence of consent" than the underlying contract containing the arbitration agreement., Stavros Brekoulakis, 'Rethinking Consent in International Commercial Arbitration: A General Theory for Nonsignatories' (2017) 8 Journal of International Dispute Settlement 610, 621. Brekoulakis further notes that the assumption that implied consent of a non-signatory to the underlying contract is sufficient to constitute consent to the arbitration agreement contained in such contract militates against the principle of separability of contracts., Stavros Brekoulakis, 'Parties in International Arbitration: Consent v. Commercial Reality' in Stavros Brekoulakis, Julian DM Lew, et al (eds) 'The Evolution and Future of International Arbitration' (2016) 119, 148. 125. The non-signatory's participation in the negotiation, performance, or termination of the contract can give rise to the ....
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....n that there is a need to seek a balance between the consensual nature of arbitration and the modern commercial reality where a non-signatory becomes implicated in a commercial transaction in a number of different ways. Such a balance can be adequately achieved if the factors laid down under Discovery Enterprises (supra) are applied holistically. For instance, the involvement of the non-signatory in the performance of the underlying contract in a manner that suggests that it intended to be bound by the contract containing the arbitration agreement is an important aspect. Other factors such as the composite nature of transaction and commonality of subject matter would suggest that the claims against the non-signatory were strongly inter-linked with the subject matter of the tribunal's jurisdiction. Looking at the factors holistically, it could be inferred that the non-signatories, by virtue of their relationship with the signatory parties and active involvement in the performance of commercial obligations which are intricately linked to the subject matter, are not actually strangers to the dispute between the signatory parties. 128. We hold that all the cumulative factors laid do....
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....ugh or under a party PART F are assignment, subrogation, and novation. In these situations, the assignees or representatives become successors to the signatory party's interests under the arbitration agreement. They step into the shoes of the signatory party, from whom they derive the right to arbitrate, rather than claiming an independent right under the arbitration agreement. 131. The scope of an arbitration agreement under the English law is limited to the parties who entered into it and those claiming through or under them., Section 82(2) of the English Arbitration Act, 1996 In Roussel-Uclaf (supra), it was held that a subsidiary company can invoke the arbitration agreement on the basis that it is "claiming through or under" the parent company because of the close relationship between the two companies. However, Roussel-Uclaf (supra) was expressly overruled by the Court of Appeal in Sancheti (supra) on the ground that a mere legal or commercial connection is not sufficient for a person to claim through or under a party to an arbitration agreement. 132. The scope of the phrase "claiming through or under" has been evaluated by other common law jurisdictions. In Tannin....
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....pute as to the beneficial title to the mining tenements would be determined by arbitration. Since the third parties accepted the benefits of the agreement, it was held that they must also accept the burdens of its stipulated conditions, including arbitration. 134. In Rinehart (supra), the Australian High Court's approach is similar to the doctrine of equitable estoppel developed by the US Courts, to the effect that a non-signatory party who elects to take the benefit of some aspects of the contract, must also accept the burden of it., Vicky Priskich, 'Binding non-signatories to arbitration agreements - who are person 'claiming through or under' a party?' (2019) 35(3) Arbitration International 375-386. However, we cannot adopt the Rinehart (supra) position in the context of the phrase "claiming through or under" as doing so would be contrary to the common law position and the legislative intent underpinning the Arbitration Act, as will be discussed below. 135. An analysis of the cases cited above establishes the following propositions of law: first, the typical scenarios where a person or entity can claim through or under a party are assignment, subrogation, and novation; seco....
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....solution mechanism. Consequently, third parties typically cannot be compelled to arbitrate based on an agreement to which they have not consented. The phrase "claiming through or under" has not been used either in Section 2(1)(h) or Section 7 of the Arbitration Act. This is because those provisions are based on the concept of party autonomy and party independence, which requires the party to provide consent to submit their disputes to arbitration. On the contrary, a person claiming through or under a party to an arbitration agreement is merely standing in the shoes of the original party to the extent that it is merely agitating the right of the original party to the arbitration agreement. 139. The phrase "claiming through or under" has been used in Sections 8, 35, and 45 in their specific contexts. Section 8 contains a mandate that when an action is brought before a judicial authority which is the subject of an arbitration agreement, the dispute shall be referred to arbitration on an application made by a party or any person claiming through or under him. As mentioned above, the phrase "claiming through or under" was inserted in Section 8 to bring it in line with Section 45. Sec....
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....person claiming through or under." The above provisions provide that an arbitration award binds not only the parties but also all such persons who derive their capacity from the party to the arbitration agreement. Again, the foundational basis for this provision is commercial efficacy as it ensures that an arbitral award leads to finality, such that both the parties and all persons claiming through or under them do not reagitate the claims. Moreover, the use of the word "and" in Sections 35 and 73 leads to an unmistakable conclusion that under the Arbitration Act, the concept of a "party" is distinct and different from the concept of "persons claiming through or under" a party to the arbitration agreement. ii. The approach adopted by this Court in Chloro Controls is Incorrect 143. This Court in Chloro Controls (supra) observed: first, that the use of the expression "any person" reflects the legislative intent of enlarging the scope of the words beyond the "parties" who are signatory to the arbitration agreement; second, a signatory party to an arbitration agreement may have a legal relationship with the party claiming through or under the party on the basis of the group of co....
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....gh or under" is used in the context of successors in interest that act in a derivative capacity and substitute the signatory party to the arbitration agreement. To the contrary, the group of companies doctrine is used to bind the non-signatory to the arbitration agreement so that it can agitate the benefits and be subject to the burdens that it derived or is conferred in the course of the performance of the contract. The doctrine can be used to bind a non-signatory party to the arbitration agreement regardless of the phrase "claiming through or under" as appearing in Sections 8 and 45 of the Arbitration Act. 147. In Chloro Controls (supra), this Court joined the non-signatory entities as parties to the arbitration agreement in their own rights on the basis that they were signatories to ancillary agreements which were closely interlinked with the performance of the principal agreement containing the arbitration agreement. This Court in Chloro Controls (supra) reasoned that the nonsignatory entities, being part of the same corporate group as the signatory parties, were subsidiaries in interest or subsidiary companies, and therefore were "claiming through or under" the signatory pa....
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....on 2(1)(h) along with Section 7 of the Arbitration Act. Since the scope of this judgment was limited to the group of companies doctrine, any authoritative determination given by this Court in the course of this judgment should not be interpreted to exclude the application of other doctrines and principles for binding non-signatories to arbitration agreements. However, we also need to be mindful of the fact that the Indian courts and tribunals should not adopt an overzealous approach to extending the jurisdiction of arbitral tribunals to non-signatory parties merely on the ground that they are part of a corporate group. 150. In Cheran Properties (supra), this Court found the non-signatory to be "claiming through or under" the signatory party to the arbitration agreement and not as a "party" to the arbitration agreement. In that case, this Court was dealing with an issue pertaining to enforcement of an arbitral award. On the available facts and circumstances, the Court held that the non-signatory was a nominee of the signatory party under the underlying commercial contract, and therefore was acting in a derivative capacity. In Canara Bank (supra) this Court indirectly adopted the ....
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....le of any goods which are the subject matter of the arbitration agreement, and appointment of receiver. 153. The group of companies doctrine is based on determining the mutual intention to join the non-signatory as a "veritable" party to the arbitration agreement. Once a tribunal comes to the determination that a non-signatory is a party to the arbitration agreement, such non-signatory party can apply for interim measures under Section 9 of the Arbitration Act. Establishing the legal basis for the application of the group of companies doctrine in the definition of "party" under Section 2(1)(h) read with Section 7 of the Arbitration Act resolves the anomality pointed out by Chief Justice Ramana. G. The standard of determination at the referral stage - Sections 8 and 11 154. The last but not the least issue that arises for our consideration pertains to the stage of applicability of the group of companies doctrine under the Arbitration Act. In Cox and Kings (supra), Chief Justice Ramana observed that there is a need to have a relook at the scope of judicial reference at the stage of Sections 8 and 11 of the Arbitration Act considering the ambit of the unamended Section 2(1)(h....
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....nue to remain in force. 157. When deciding the referral issue, the scope of reference under both Sections 8 and 11 is limited. Where Section 8 requires the referral court to look into the prima facie existence of a valid arbitration agreement, Section 11 confines the court's jurisdiction to the existence of the examination of an arbitration agreement. 158. Section 16 of the Arbitration Act enshrines the principle of competence competence in Indian arbitration law. The provision empowers the arbitral tribunal to rule on its own jurisdiction, including any ruling on any objections with respect to the existence or validity of arbitration agreement. Section 16 is an inclusive provision which comprehends all preliminary issues touching upon the jurisdiction of the arbitral tribunal., Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field, (2020) 2 SCC 455 The doctrine of competencecompetence is intended to minimize judicial intervention at the threshold stage. The issue of determining parties to an arbitration agreement goes to the very root of the jurisdictional competence of the arbitral tribunal. 159. In Vidya Drolia (supra), Justice N. V. Ramana (as the learned Ch....
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....or unenforceable, based upon purely a prima facie view, nothing prevents the arbitrator from trying the issue fully rendering a final decision thereupon. If the arbitrator finds the agreement valid, there is no problem as the arbitration will proceed and the award will be made. However, if the arbitrator finds the agreement invalid, inoperative or void, this means that the party who wanted to proceed for arbitration was given an opportunity of proceedings to arbitration, and the arbitrator after fully trying the issue has found that there is no scope for arbitration." 162. In Chloro Controls (supra), this Court held that it is the legislative intent of Section 45 of the Arbitration Act to give a finding on whether an arbitration agreement is "null and void, inoperative and incapable of being performed" before referring the parties to arbitration. In 2019, the expression "unless it prima facie finds" was inserted in Section 45. In view of the legislative amendment, the basis of the above holding of Chloro Controls (supra) has been expressly taken away. The present position of law is that the referral court only needs to give a prima facie finding on the validity or existence of a....
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....g conclusions: a. The definition of "parties" under Section 2(1)(h) read with Section 7 of the Arbitration Act includes both the signatory as well as non-signatory parties; b. Conduct of the non-signatory parties could be an indicator of their consent to be bound by the arbitration agreement; c. The requirement of a written arbitration agreement under Section 7 does not exclude the possibility of binding non-signatory parties; d. Under the Arbitration Act, the concept of a "party" is distinct and different from the concept of "persons claiming through or under" a party to the arbitration agreement; e. The underlying basis for the application of the group of companies doctrine rests on maintaining the corporate separateness of the group companies while determining the common intention of the parties to bind the nonsignatory party to the arbitration agreement; f. The principle of alter ego or piercing the corporate veil cannot be the basis for the application of the group of companies doctrine; g. The group of companies doctrine has an independent existence as a principle of law which stems from a harmonious reading of Se....
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............................................................. 9 C. Group of Companies Doctrine ............................................. 17 i. International Perspectives ................................................. 17 ii. Indian Precedents on the Group of Companies Doctrine ... 27 D. Group of Companies Doctrine in the Context of Section 7 ... 39 E. Conclusion .......................................................................... 43 A. Introduction 1. The reference to this Constitution Bench is for an authoritative determination of the applicability of the 'Group of Companies doctrine' to proceedings under the Arbitration and Conciliation Act, 1996, Hereinafter referred to as the Act. and if found to be applicable and statutorily anchored, to delineate its precise contours. 2. In the reference order, Chief Justice N.V. Ramana highlighted the variations in the exposition and application of the doctrine as it has evolved in India. He questioned the statutory source of the doctrine in the phrase "claiming through or under", which appears in Sections 8 and 45 of the Act. He also cautioned that maintaining the separate legal identities of memb....
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.... (d) Whether the principles of alter ego and/or piercing the corporate veil can alone justify pressing the Group of Companies doctrine into operation even in the absence of implied consent?", ibid, para 104. 4. I have had the advantage of going through the erudite and comprehensive opinion of the learned Chief Justice. While I agree with his reasoning and conclusions, I consider it necessary to supplement them with my own reasoning on some important aspects. The broad question before us relates to the 'parties' to an 'arbitration agreement'. This question must take us to Section 7 of the Act that defines an 'arbitration agreement' as under: "7. Arbitration agreement.-(1) In this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained....
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....om enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or (b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent." However, exceptions to Section 28 save a "contract to refer to arbitration" any dispute that has arisen or may arise between two or more persons., The relevant portion of Section 28, Indian Contract Act, 1872 reads: "Exception 1. -Saving of contract to refer to arbitration dispute that may arise. -This section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred. Exception 2. -Saving of contract to refer questions that have already arisen. -Nor shall this....
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....ration Agreement is a Contract 8. An arbitration agreement is more specifically defined in Section 7(1) of the 1996 Act as an "an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not." The use of the phrase 'whether contractual or not' qualifies the dispute, not the agreement; an arbitration agreement must always be a contract, but the dispute that is referred to arbitration need not necessarily be contractual, suffice it to be arising out of a "defined legal relationship"., Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1, para 24 [2020 INSC 697]; Gemini Bay Transcription Pvt Ltd v. Integrated Sales Service Ltd, (2022) 1 SCC 753, para 30 [2021 INSC 392]. 9. Arbitration Agreement must be in writing, as against an oral agreement. However, it need not be signed document: India has adopted the UNCITRAL model, UNCITRAL Model Law on International Commercial Arbitration, 1985. which lays emphasis on the substance of an agreement, rather than its form, to determine the existence of the agreement to arbitrate. Sub-Section (2) of Sectio....
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....s were ad idem"., Rickmers Verwaltung Gmbh v. Indian Oil Corporation Ltd, (1999) 1 SCC 1, para 13 [1998 INSC 436]. In Rickmers Verwaltung Gmbh v. Indian Oil Corporation Ltd, ibid; also see MTNL v. Canara Bank, (2020) 12 SCC 767, para 9.3 [2019 INSC 881]. this Court referred to the role of courts while considering the existence of an arbitration agreement as under: "12. ...The question, however, is: can any agreement be spelt out from the correspondence between the parties in the instant case? 13. In this connection the cardinal principle to remember is that it is the duty of the court to construe correspondence with a view to arrive at a conclusion whether there was any meeting of mind between the parties, which could create a binding contract between them but the court is not empowered to create a contract for the parties by going outside the clear language used in the correspondence, except insofar as there are some appropriate implications of law to be drawn. Unless from the correspondence, it can unequivocally and clearly emerge that the parties were ad idem to the terms, it cannot be said that an agreement had come into existence between them through correspo....
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....ies and it ought to have been given full effect by the High Court." The parties must mutually intend to refer their differences to arbitration as consent is the source of the arbitral tribunal's jurisdiction over them., KK Modi v. KN Modi, (1998) 3 SCC 573, para 17 [1998 INSC 63]; Bihar State Mineral Development Corporation v. Encon Builders (I) Pvt Ltd, (2003) 7 SCC 418, para 13 [2003 INSC 409]. 13. The settled jurisprudence under Section 7(4)(b) is that the non-signatory's consent to an arbitration agreement can be made out from its conduct by way of exchange of letters, telegrams and other forms of written communication., Shakti Bhog Foods v. Kola Shipping Ltd, (2009) 2 SCC 134, para 17 [2008 INSC 1081]. These correspondences constitute the written record of the agreement. In Smita Conductors v. Euro Alloys, (2001) 7 SCC 728 [2001 INSC 417]. this Court was tasked with determining whether certain correspondences by the appellant therein, that were not addressed to the respondent, showed the appellant's consent to arbitration as per the Article II(2) of the New York Convention, under the Foreign Awards (Recognition and Enforcement) Act, 1961. The Court noted that the contrac....
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....agreement. iii. Section 7(3) mandates that the arbitration agreement shall be in writing, as against an oral agreement. However, the written form of the document evidencing the agreement need not be signed by the parties., Jugal Kishore Rameshwardas (supra), para 7; Rickmers Verwaltung Gmbh (supra), para 12; Shakti Bhog Foods Ltd (supra), para 17; Caravel Shipping Services (P) Ltd (supra), para 8. iv. 'Party' is defined in Section 2(1)(h) as "a party to an arbitration agreement". The determination of the arbitration agreement and its parties are inextricably connected with one another, their existence is based on the written agreement. v. If the arbitration agreement is evidenced in the written form as contained in a document signed by the parties (Section 7(4)(a)), the parties to the agreement are evidently those who have signed the agreement. vi. If the arbitration agreement is evidenced in the written form as contained as admissions in pleadings comprising statements of claim and defence (Section 7(4)(c)), parties to this agreement would be evident from the statements of claim and defence and the admissions made therein. vii. The arbi....
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....e interpreting the contract, courts or tribunals adopt wellestablished principles of construction. These principles are in the nature of guidelines for the court to presume the intention of the parties. xi. As the arbitration agreement is confined to a written document contained in the material specified in Section 7(4)(b) and the interpretation and construction is based on its text, Sections 91 and 92 of the Indian Evidence Act, 1872 disable adducing of oral evidence., See Roop Kumar v. Mohan Thedani (2003) 6 SCC 595, paras 13, 16-18 [2003 INSC 206]. This is necessary to prevent a referral proceeding from being converted into a full-fledged trial. If the arbitration agreement cannot be deduced from the record of agreement as provided in Section 7(4)(b), the inquiry must conclude. This approach is in consonance with the requirement of a written agreement and also subserves the important policy consideration as surmised in Section 5 of the Act. 16. It is in the context of the above referred legal regime, statutory as well as precedential, that we need to consider the questions referred to this Constitution Bench - whether the Group of Companies Doctrine is part of Indian....
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....emical Europe (fully-owned subsidiaries of Dow Chemical Company (USA)) were signatories to two separate agreements containing arbitration clauses with Isover Saint Gobain. Dow Chemical France, a non-signatory to these agreements but a member of the Dow group, effectuated the deliveries under these agreements. When disputes arose and Isover instituted suits in the French courts against all four Dow companies, both the signatory and the non-signatory Dow companies instituted arbitral proceedings. Isover objected to the arbitral tribunal's jurisdiction to render an award with respect to Dow Chemical France and Dow Chemical Company (USA), as they were non-signatories. On the other hand, the non-signatory companies argued that they can invoke arbitration due to their involvement in the conclusion and performance of these contracts, and by virtue of them being in the same group of companies. 23. The Arbitral Tribunal applied French law to determine whether the non-signatories are parties "by reference to the common intent of the parties to these proceedings, such as it appears from the circumstances that surround the conclusion and characterize the performance and later the terminatio....
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.... to make the non-signatory a party., Born (supra) 1562-1563. In Dallah Real Estate and Tourism Holding Co. v. Ministry of Religious Affairs, Government of Pakistan, the Paris Court of Appeal enforced the arbitral award against the Pakistan government (non-signatory) as its conduct through involvement in the negotiation and performance of the contract reflected common will to be a party to the arbitration., Case No. 9-28533, dated 17 February 2011 (Paris Cour d'Appel). Common will must be ascertained according to the principles of good faith (parties must not be allowed to evade commitments) and effectiveness (when parties insert an arbitration clause, it must be presumed that their intent is to be governed by the arbitration)., Malakoff Corporation Berhad and TLEMCEN Desalination Investment Company v. Algerian Energy Company SA and Hyflux Limited, Case No. 21-07296, dated 13 June 2023 (Paris Cour d'Appel). 26. The focus on mutual intention reflects a fundamental difference between the Group of Companies doctrine and 'piercing the veil' or alter ego. In veil-piercing, the separate legal identities of the parent and subsidiary companies are disregarded or nullified on equity and f....
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....p.A., 4A_450/2013. 31. American courts also do not expressly rely on the Group of Companies doctrine to determine whether a non-signatory is a party. Rather, they use principles such as equitable estoppel, assumption, piercing the corporate veil, alter ego, and waiver., GE Energy Power Conversion France SAS Corp., FKA Converteam SAS v. Outokumpu Stainless USA, LLC, et al., Case No. 18-1048 (1 June 2020). In the recent decision in GE Energy Power Conversion v. Outokumpu Stainless, the US Supreme Court relied on equitable estoppel to hold that a non-signatory can compel arbitration where a signatory is relying on terms of the contract to make its claim against the non-signatory., ibid. American courts have also relied on implied consent, McBro Planning & Dev. Co. v. Triangle Elec. Constr. Co. Inc., 741 F.2d 342 (11th Cir. 1984). third party beneficiary, Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc. 138 F.3d 160 (5th Cir. 1998). and general contractual and agency law principles to hold that a non-signatory is a party., Sarhank Group v. Oracle Corp, 404 F. 3d 657 (2nd Cir. 2005). 32. This comparative perspective makes it clear that a determination of parties to an....
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....Inc. (supra); Sarhank Group (supra). have not accepted the Group of Companies doctrine in those terms. However, they invoke other legal principles to hold a non-signatory to be a party to the arbitration agreement (such as conduct, implied consent, contractual and agency principles). vi. American courts also solely rely on equity considerations (non-consensual) to hold a non-signatory to be party, such as when they apply equitable estoppel and veil piercing/alter ego., GE Energy Power Conversion (supra). ii. Indian Precedents on the Group of Companies Doctrine 34. I will now consider the application of the Group of Companies doctrine by our courts and formulate principles that arise from the precedents. 35. I am in agreement with the detailed analysis of the Indian case-law on this doctrine by the learned Chief Justice. The position of law in India can broadly be divided as it existed before and after the decision in Chloro Controls (supra). I have already referred to the decisions interpreting and applying Section 7(4)(b) in Part B(ii) of my opinion. The decisions cited therein recognise the possibility of a non-signatory company being a party to the arbitration.....
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....e party signatory to the arbitration agreement, direct commonality of the subject-matter and the agreement between the parties being a composite transaction. The transaction should be of a composite nature where performance of the mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute..." (emphasis supplied) 39. In his opinion, the learned Chief Justice has considered the concern of Justice Surya Kant about an apparent contradiction between the above-referred paragraphs 72 and 73, and has correctly reconciled the two paragraphs. I am in agreement with the same. 40. In this context, it is critical to emphasize that the Court in Chloro Controls was interpreting Section 45, in Part II of the Act, in particular, the phrase "claiming through or under". The conclusion to include non-signatories to the arbitration agreement pivoted on their derivative claim to being a party to the arbitration agreement. The Group of Companies doctrine thus found recognition in the interpretation of the phrases of Section 45 of the Act. Further, for the ....
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.... arbitration clause. K.C. Palaniswamy nominated the appellant to receive 95% of the shares that were to be transferred to him. Subsequently, disputes arose and an arbitral tribunal directed him to return the share certificates and title documents. The appellant was made party to the proceedings filed by the respondents to enforce the arbitral award. The Court allowed the enforcement of an arbitral award against a subsequent purchaser of shares under Section 35 of the Act, interpreting the phrase "persons claiming under them". However, expositions pertaining to the Group of Companies doctrine were observed in the judgment, in response to certain arguments advanced before the Court. In that context, the Court made the following observations: "23. As the law has evolved, it has recognised that modern business transactions are often effectuated through multiple layers and agreements. There may be transactions within a group of companies. The circumstances in which they have entered into them may reflect an intention to bind both signatory and non-signatory entities within the same group. In holding a non-signatory bound by an arbitration agreement, the court approaches the mat....
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....enckiser (India) Pvt Ltd v. Reynders Label Printing India Pvt Ltd, (2019) 7 SCC 62 [2019 INSC 700]. the Court inferred that since the non-signatory neither signed the arbitration agreement nor had any causal connection with the negotiation or execution of the agreement, an intent to consent to the arbitration agreement could not be discerned. Hence, the non-signatory was not bound by the arbitration agreement., ibid, para 12. Thus, in Reckitt, the Court reverted to the approach of ascertaining mutual intention of the parties for applying the doctrine, although it did not result in the nonsignatory being made a party to the arbitration. 47. MTNL v. Canara Bank, (2020) 12 SCC 767 [2019 INSC 881]. is the decision which acknowledged the Group of Companies doctrine, formulated its principles, and applied them to the proceedings by recognising CANFINA, a nonsignatory, to be party to the arbitration agreement. The Court held: "10.5. The group of companies doctrine has been invoked by courts and tribunals in arbitrations, where an arbitration agreement is entered into by one of the companies in the group; and the non-signatory affiliate, or sister, or parent concern, is held to....
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....d by it, the law considers the following factors: (i) The mutual intent of the parties; (ii) The relationship of a non-signatory to a party which is a signatory to the agreement; (iii) The commonality of the subject-matter; (iv) The composite nature of the transaction; and (v) The performance of the contract. 41. Consent and party autonomy are undergirded in Section 7 of the 1996 Act. However, a non-signatory may be held to be bound on a consensual theory, founded on agency and assignment or on a non-consensual basis such as estoppel or alter ego..." 49. What emerges from the aforementioned precedents is that: i. The Group of Companies doctrine was adopted and applied in Indian arbitration jurisprudence in Chloro Controls (supra), where the Court read the doctrine into the phrase "claiming through or under" in Section 45. It held that a non-signatory affiliate or sister or parent company can be a party to an arbitration agreement if there is mutual intention of the signatories and non-signatories to this effect. In order to determine mutual intention, the Court laid down factors such as direct relationship, direct co....
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....m the tests laid down in Chloro Controls and Reckitt Benckiser but do not include the test of single economic reality as a determinative factor, as held in MTNL (supra). 50. At this juncture, it is necessary to clarify and answer a common question referred for our consideration, i.e., whether the Group of Companies doctrine is anchored in Sections 8 and 45 of the Act. The expression "claiming through or under" employed in Sections 8 and 45 is concerned with instances of succession and derivative rights. Learned Chief Justice has dealt with this aspect in great detail in Part F (i) and (ii) of his opinion and held that the doctrine cannot be anchored in Sections 8 and 45 and to this extent, Chloro Controls (supra) is wrongly decided. I am in complete agreement with his reasons and findings. D. Group of Companies Doctrine in the Context of Section 7 51. In this reference, we are tasked to determine whether the Group of Companies doctrine is in accord with the statutory regime of the Arbitration and Conciliation Act, 1996, defining an arbitration agreement and parties thereto. The adaptation of the doctrine has been doubted, and that is the reason for this reference. While de....
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....formation, performance, and discharge of the contract. While interpreting and constructing the contract, courts or tribunals may adopt wellestablished principles, which aid and assist proper adjudication and determination. The Group of Companies doctrine is one such principle. It may be adopted by courts or arbitral tribunals while interpreting the record of agreement to determine whether the nonsignatory company is a party to it. 54. Although the application of the Group of Companies doctrine in India has until now been independent of Section 7, its juxtaposition with Section 7(4)(b) case-law shows that the inquiry under both is premised on determining the mutual intention of parties to submit to arbitration. The mutual intention of the parties is discernible from their conduct in the performance of the contract and this inquiry is common to Section 7(4)(b) jurisprudence and the Group of Companies doctrine. Even the precedents on the doctrine, national and international, look to additional factors beyond the non-signatory being in the same group of companies, such as commonality of subject-matter, composite nature of transaction, and interdependence of the performance of the co....